7-Eleven bucks economic slowdown, remains bullish about full year targets

Philippine Seven Corp. (PSC), the operator of the 7-Eleven chain of convenience stores in the country, expects its bottom line to remain resilient for the rest of the year, amid concerns about rising inflation, and the persisting credit crisis in the US, which is threatening growth in emerging markets.

Jose Victor Paterno, PSC President and Chief Executive, said difficult times have prompted consumers to buy items by piece in convenience stores nearby, instead of going all the way to supermarkets to buy in bulk.

“The retailing industry is very much affected by the dire economic condition to a point where supermarkets and malls are offering sale for most products sold in their outlets because consumers are scrimping on their peso,” Paterno said.

“But for convenience stores like 7-Eleven, sales of consumer items have not dipped as badly as those in supermarkets and groceries since consumers are now buying by piece instead of by bulk for their most basic household and office needs,” he added.

From a record high GDP of 7.2 percent in 2007, the Philippine economy’s growth slowed down to 4.6 percent for the second quarter of this year, dragged by rising consumer prices. Consumer prices rose at a faster pace of 12.5 percent as of August, from just 2.4 percent recorded during the same month last year primarily due to volatile food and fuel prices.

But the worse seems not yet over, as the global credit crisis that started in the US continues to affect financial markets across the world, causing more capital flight as investors are reassessing risks and creating potentially adverse impact to the real economy as lenders become tight in liquidity.

While other companies are bracing for tough times ahead, PSC is bullish about its chances. The listed firm continues to aggressively expand its operations through franchising, targeting to have 400 stores by the end of the year, from just 311 outlets as of the end of last year.

Paterno said the aggressive expansion of 7-Eleven does not only post a remarkable growth within the convenience store’s financial position, but also contribute to the national economy as well.

“Everytime there is a new 7-Eleven outlet, we believe that PSC projects a contribution to the economy,” Paterno said. “Synonymous to our growth is the additional employment, new business opportunity for both the franchisees and suppliers.

A typical 7-Eleven store normally employs about eight to 10 personnel depending on the size of the outlet. The number adds up to the national employment rate every time there is a new outlet opened. To date, 7-Eleven has a total workforce of close to 3,000 personnel locally, including the manpower provided by franchisees.

PSC attributes the rapid growth of its franchisees to the four franchise formats, namely: the New Store Franchise, Franchise-Conversion, Service Agreement, and Property Conversions which provide options for entrepreneur to choose from.

In most areas where 7-Eleven operate, they have also become geographical landmarks where people decide to converge and begin or end their day in. More often than not, they get into the stores to buy stuffs they need for the day or night.

 By strategy, 7-Eleven stores go to where there are heavy foot traffic and great visibility. But the stores, by themselves, have become natural magnets attracting people to assemble in the stores for whatever purpose.

PSC reported a net income of P54.83 million for 2007, almost three times more than the P20.14-million net income it reported for the entire 2006. Franchise revenues rose to P204.3 million in 2007, from P148 million during the period in 2006.

Paterno said the company ended 2007 with 51 percent of its 311 stores franchised, up from 42 percent of 287 stores in 2006. “By the end of 2008, we expect that more than 60 percent of our stores will be operated by franchisees,” he said.